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Government shows 'strong will' to check speculative investment

DUBAI — The government of Dubai is showing a strong political will in warding off speculative investment and sustain growth in the property sector, with developers and analysts welcoming it although they say it is not enough to deter short-term speculation.

To start with, the Dubai Land Department has reportedly created a new law requiring the registration of off-plan property sales, or units being sold before they are built, and scrapping transfer fees on sales being charged by developers.

Law No 13 of 2008 says any sale that transfers or restricts title is void unless registered with the emirate's land department, which will require administrative fees at its discretion even if all transfer fees are abolished. It also stipulates that a developer making a sale before the law becomes effective must register it within 60 days.

A daily report issued by Standard Chartered Bank (SCB) on Monday said these changes are not enough to stop investors from flipping properties, or selling them at higher prices within a one-year period.

"(B)ut they are at least an indication that the regulators are indeed looking at ways of improving the overall business environment in the property market," stressed the four-page report, Improving Regulation.

Stressing that the changes would improve the business environment in Dubai, the general manager of Dubai-based Pride International Real Estate, Muzaffar A Soofi, said he is in favour of further regulation provided the government restrict flipping to a 30 per cent payment of properties.

"That would narrow it down to serious buyers and a healthy market," he stressed.

Some analysts and developers earlier said they did not advocate too much regulation of the property market as this would scare off investors while others said that more rules would help weed out short-term investors.

SCB said in a report last month that further regulation in the property market was necessary as there were signs of overheating while the global investment banking and financial services firm Morgan Stanley had said that property prices would drop by 10 per cent by 2010 as more projects would be delivered. Preventing investors from selling their units within the first year of ownership, increasing the down payment to 20 per cent from 10 per cent and requiring buyers to present proof of being able to pay the remaining 80 per cent of the property value were among the recommendations given by SCB. Dubai also issued a new law last week regulating the mortgage process wherein contracts are required to be registered with the land department and include specific information on the size of the loan and the value of the property involved and the period for repayment.

This is aimed to protect the rights of borrowers and lenders. Property developer and manager Fakhruddin Properties, meanwhile, said that registered project developers and related firms in Dubai and Abu Dhabi rose to 4,047, including the 1,588 companies and contracting offices in the former and the 1,588 management, investment and real-estate developers in the latter.

Citing data from both emirates and the Abu Dhabi Chamber of Commerce, Fakhruddin said the real-estate sector is the country's most profitable investment sources, attracting investors from all over the world.

It added that bank funding for the real-estate market alone amounted to Dh45 billion in 2007, out of the Dh75 billion that had been allocated for the construction industry. Dubai, home to projects such as the man-made palm-shaped islands and another set in the shape of a world map, has experienced a surge in property prices since 2002, when foreigners were allowed to own real estate in selected areas across the emirate.

jose@khaleejtimes.com